Nvidia has outbid rival Intel to acquire next-generation chip maker Mellanox Technologies for $6.9bn.
Mellanox was established in Israel in 1999 but is now headquartered in the US.
It manufactures chips for datacentre servers that power cloud computing and had a market valuation of $5.9bn before being purchased.
It was reportedly at the centre of a bidding war between Nvidia, Intel and Microsoft, according to Reuters.
Nvidia is best known for producing graphics cards for computer game consoles, but this acquisition will boost its growing datacentre wing.
In its fiscal 2019, Nvidia's datacentre business grew 52 per cent year on year, contributing $2.9bn to its total revenue of $11.7bn.
Nvidia explained that the purchase is due to the pressure being put on hyperscale and enterprise datacentres by the explosion in artificial intelligence (AI), scientific computing and data analytics.
The vendor added that the acquisition of Mellanox will optimise workloads across the computing, networking and storage stacks to enhance performance and utilisation, as well as lower operating cost for customers.
"The emergence of AI and data science, as well as billions of simultaneous computer users, is fuelling skyrocketing demand on the world's datacentres," said Jensen Huang, founder and CEO of NVIDIA.
"Addressing this demand will require holistic architectures that connect vast numbers of fast computing nodes over intelligent networking fabrics to form a giant datacentre-scale compute engine.
"We're excited to unite NVIDIA's accelerated computing platform with Mellanox's world-renowned accelerated networking platform under one roof to create next-generation datacentre-scale computing solutions.
"I am particularly thrilled to work closely with the visionary leaders of Mellanox and their amazing people to invent the computers of tomorrow."
Eyal Waldman, founder and CEO of Mellanox, stated: "Combining our two companies comes as a natural extension of our longstanding partnership and is a great fit given our common performance-driven cultures.
"This combination will foster the creation of powerful technology and fantastic opportunities for our people."
Nvidia expects the deal to close by the end of 2019.
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